3.3. Determining Economic Life Based on Profit

Try these first

1. 1.

   What formula is used to calculate depreciation?

   Hint

   Think about how much the asset loses value over time.

2. 2.

   How do you calculate the book value at the end of the first year?

   Hint

   You want to reduce the purchase price by the depreciation amount.

3. 3.

   What is the formula for calculating the book value at the end of the first year?

   Hint

   Consider what happens to the asset's value over time.

4. 4.

   True or False: The economic life of a machine is the period during which it is less costly to maintain than to replace.

   Hint

   Focus on the relationship between cost and lifespan.

5. 5.

   If a loader with a purchase price of 30 lakh has a depreciation rate of 30%, calculate its book value after 2 years.

   Hint

   Remember to recalculate the book value after each year based on the current value.

6. 6.

   Using the maximum profit approach, if the estimated annual profit of a current loader is 7,90,000, and the proposed loader offers a maximum average annual profit of 8,50,000, should the company replace the loader?

   Hint

   Compare profits to assess if replacement is needed.